The requirement by the consumer-focused Solicitors Regulation Authority (SRA) for law firms to purchase professional indemnity insurance (PII) to comply with minimum terms, has remained a constant in these unprecedented times. The recent 1 October PII renewal process has been challenging. It has highlighted the issue of negotiating PII renewal terms in an insurance market undergoing significant change, whilst also adjusting to recessionary conditions imposed by the coronavirus (COVID-19) pandemic.

Since the PII market for solicitors moved from a mutual insurance arrangement (SIF) to the open market in 2000, conditions have largely been 'soft', meaning that the supply of insurance outstripped demand and prices remained increasingly competitive. In an attempt to keep prices down when they threatened to go up, the SRA introduced unrated Insurers as an option for firms. However, changes to the PII market began to emerge in 2018, when various Insurer stakeholders highlighted their concerns regarding the underperformance of PII as a class of insurance business. The position deteriorated further following a thematic review by Lloyd's of London, the upshot of which was that PII was formally identified as an under-performing class, and a number of Lloyd's syndicates were refused capacity to continue writing it. With the reduction in numbers of Insurers willing or able to underwrite PII came a 'hardening' of the market; demand suddenly outstripped supply and prices started to rise.

As a result of this perfect storm of market conditions – made even worse by COVID-19 - renewal discussions were extremely challenging this October, with all firms experiencing rate increases regardless of their claims records and risk profiles. We do not foresee conditions changing in the short term. But, having experienced the approach that Insurers have taken to this latest renewal season, there are steps that firms can take to prepare for their next renewal.

The October renewal period was expected to be challenging even without the added factors caused by the pandemic, with the UK officially going into recession for the first time since the financial crisis of 2008 and, we cannot forget, the uncertainty around the outcome of the Brexit trade negotiations. It is fair to say that the present PII market conditions are the most challenging the legal profession has experienced for years.

At this renewal, Insurers asked many questions of firms about the business impact of COVID-19. Underwriters were keen to understand how law firms have adjusted to - and are continuing to manage - the evolving risk landscape. In particular, enquiries were raised with regards to how firms had adjusted to conducting business and maintaining quality and supervisory standards - not only during lockdown, but also as restrictions eased, with law firms returning to the workplace and/or operating in a hybrid structure. We also saw Insurers place a much greater emphasis on firms' financial hygiene and stability (more on this below).

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